CoinDesk, the media outlet owned by Digital Currency Group, recently filed a Freedom of Information Law (FOIL) request with the State of New York, asking for documents regarding the composition of Tether's reserves. On Tuesday, an attorney for Tether and Bitfinex petitioned to block that release, claiming that the documents contain information about financial strategies and compliance measures which constitute competitive secrets. It is either a sign of industry maturity or dysfunction that regulatory bodies can now be wielded for competitive advantage.

Stablecoin issuers have been widely criticized over the reserve holdings behind their dollar-denominated tokens. Earlier this year, Bitfinex and Tether settled an investigation with the Office of the Attorney General in New York, which resulted in an $18.5 million fine and an agreement to publish quarterly breakdowns of the company's reserve assets. Coinbase was also forced to retract a claim that the USD Coins it offered were backed by dollars in a bank account, when in fact the USD Coins were backed in part by commercial paper, corporate bonds, and other less liquid assets.

Why are stablecoin issuers so cagey about their assets? According to the petition filed by Tether's attorney, the company's private financial relationships constitute its main competitive advantage. If that information becomes public, other stablecoin platforms could replicate the financial investments and erase Tether's market lead. 

Security through obscurity runs contrary to the ethos of public blockchains, where individuals are expected to verify, not trust. On the other hand, the administrative state collects an enormous amount of information about anyone and anything. and FOIL requests create a selective channel for the state to mete it out. 

In theory, anyone can request public records from a government agency. In reality, information requests often involve costly and time-consuming litigation, which is why CoinDesk retained Lance Koonce of Klaris Law to navigate the process. 

Businesses have an economic incentive to seek out agency records that may provide insight on the activities of regulators, competitors, and customers. In a recent study, nearly 80% of information requests made to government agencies were commercial in nature. That is, the requests were made by private enterprises for private benefit. Hedge funds notoriously exploit Freedom of Information Act requests to gain information about which companies have been targeted by FDA warnings or SEC investigations. Once information is obtained through a FOIL or FOIA request, there is no obligation to share it with the public.

It is reasonable for Tether to be suspicious of FOIL requests submitted by CoinDesk, given that the media outlet's parent company is also an investor in Circle and Coinbase. In the interest of transparency and fairness, someone ought to file some Freedom of Information Act requests on Coinbase and Circle; the two exchange operators have certainly had their share of interactions with government agencies.

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